The crypto market is experiencing a notable shift in liquidity as investors acquire massive amounts of stablecoins due to market uncertainties in the last few months. CryptoQuant analyst with username Percival has provided more insights into this trend of capital rotation.
Open Interest In Crypto Market Shrinks As Stablecoins See Liquidity Influx
Following a rather bearish week, the crypto market has seen an uptick in the last day with the total market cap rising 2.86% to attain a valuation of 1.92 trillion. However, on a larger time scale, the nascent Industry is surrounded by levels of uncertainty resulting in significant levels of capital rotation among investors.
According to Percival, levels of Open Interest in the crypto market grew by 54% between May and July with the stablecoin market cap declining by approximately 80% within the same period. To explain, Open Interest refers to the total number of outstanding derivatives (futures/options) contracts that are yet to be settled or closed.
An increase in Open Interest indicates a heightened trading activity and market interest from investors who are taking speculative positions on the future price of volatile assets such as Bitcoin,Ethereum, etc. Therefore, it is normal that a rise in Open Interest coincides with the movement of liquidity outside of stablecoins which are seen as safe, low-volatility assets.
However, from July to present September, Percival has observed a reversal in this trend with Open Interest reducing by 25% as the total stablecoin market cap rose by $4.7 billion. This development indicated that traders are moving their liquidity back to safer assets as they perceive much uncertainty around the crypto market.
Notably, the crypto market has produced significant levels of instability in the last two months with Bitcoin falling to around $54,000 in July and even dipping below $50,000 in early August. The market leader has alsobegun September in a similar fashion and is expected to close the month with negative returns based on historical performances.
Crypto Bulls Build Stronger Price Floor Amid Weakening Selling Pressure
According to Percival, the large influx into the stablecoin market does not only indicate market uncertainty but can also be interpreted as a positive sign of traders working to establish a stronger price floor as they perceive a diminishing selling pressure. Therefore, this trend can be viewed as a defensive strategy as these market participants wait out potential downturns before re-entering the market for future gains.
At the time of writing, the total crypto market cap is valued at $1.92 trillion with Bitcoin holding a 54% market dominance with market shares valued at $1.15 trillion. The premier cryptocurrency is currently valued at $$53,860 following an 8.55% decline in the past week.
Featured image from Forbes, chart from Tradingview
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